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Employers in California and U.S. see increases in healthcare costs, new study says

November 17, 2010 | 4:23
pm

California employers that provide health insurance benefits for their workers have seen their costs rise 8.4% this year, outpacing increases for businesses nationally, and fees could climb 11.4% next year, a study showed Wednesday.

Employers in California are spending an average of $9,960 per worker on healthcare in 2010. Nationally, companies that offer health insurance are spending $9,562 per employee, a 6.9% increase over 2009, according to a survey by Mercer, the benefits consulting firm that conducted the national survey of more than 2,800 employers.

Mercer attributed the higher California costs to the state’s relatively expensive marketplaces and to a heavy reliance on HMOs, which offer generous benefits but charge higher premiums on average than other types of insurance.

In California and across the country, employers of all sizes are offsetting their healthcare expenses by shifting costs to employees in the form of higher deductibles and larger out-of-pocket fees for medical care.

“Unfortunately, the reality is that employees are increasingly sharing in that growing cost,” said Laura Baker, a consultant for Mercer in Los Angeles. “They are feeling the pinch.”

California employers said they expect to hold their cost increases next year to 7.8% by changing the benefits they offer or by picking new insurance vendors. Businesses nationally said they could keep their increases to 6.4%.

Mercer found that larger businesses are experiencing bigger cost increases than small firms this year. Companies with 500 or more employees are spending $10,073 on healthcare for each worker, while employers with fewer than 500 are spending $8,825.

Baker said larger firms that have already shifted costs to employees are probably absorbing increases to remain competitive. At the same time, she said, employees at these big firms may be using more healthcare services for fear of losing their coverage if they are laid off.

“It plays into why costs are going up,” she said.

The study showed an increase in employees enrolled in high-deductible plans and other “consumer-directed” options, such as health savings accounts that allow individuals to set aside tax deductible income to pay for medical care. Eleven percent of workers nationally are enrolled in such plans this year, up from just 1% in 2005.

Enrollment in these types of plans has grown fastest among employers with 20,000 or more workers, a group that often establishes trends for smaller companies.